The "no bailout?!" hysteria is about to hit a fever pitch, but I don't think it's the calamity many are declaring.
First, the Big 3 bailout question has been framed in terms of "we can't let them fail!" But bailout and bust are not the only two options. Chapter 11 bankruptcy is not the end of the world. It exists to help companies get their act together.
But some don't want them to file bankruptcy. Who and why not? Well, that should be obvious. Big labor knows that if the automakers go into chapter 11, all labor contracts are on the table for renegotiation. That's not good for the unions. The evidence for this is that the unions jumped up to offer concessions to keep them out of bankruptcy (e.g., suspending the "jobs bank). If they have to go back to the bargaining table in this climate, they're going to lose big, and they don't want that to happen.
You can't blame the labor unions for wanting to keep the deals they've gotten. Their job is to get the best deals they can for their people. The problem is that those deals are a big part of what's killing the domestic car companies.
Second, even if one of them does close its doors, it's not the end of the world. I understand the whole domino effect, and it would certainly be a hit to our limping economy, but we would survive.
What we may not survive is further strengthening the notions that the federal government holds the solution to all of our problems and that the American taxpayer is supposed to rescue poorly run companies.
We live in an increasingly consequence averse society. We don't like to let anyone fail -- be it students, little league teams, or poorly run businesses. Well, failure is a part of life, and it is frequently an important instructor. If one (or more) of the Big 3 has to close up shop, that will provide many important lessons for all the other car makers, "foreign" and domestic, and every other industry.
Most of all it well tell our society that failure is still an option in this country.
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Actually, if you take out the legacy health care costs (which is due to happen in a year or so under current contracts), workers for the Big Three earn comparable pay to non-union workers for Honda, Toyota, and other manufacturers.
Chapter 11 reorganization depends on a company's ability to get debtor-in-possession financing. Simply put, it won't happen in the today's credit markets. Without the government stepping in to provide DIP financing, the Big Three, or at least Chrysler and GM, would be in Chapter 13 liquidation.
Without some form of government financing, the Big Three fail. It is simply a question of whether we provide the financing before they file for bankruptcy or after they do.
The Swedish government unveiled a $3.4 bailout for Saab and Volvo today. I don't think that we want to let our auto industry fail just to teach it a lesson.
I am not sure that I want our government to bailout any industry. First, it appears that the money goes to the people at the top and very little, if any, will be put into the pockets of the workers. Second, there is clearly a lack of oversight in place right now for the monies that have been spent.
I find it interesting that we have this talk of government bailouts coming from an administration that is supposed to be for fiscal conservatism.
Let's begin to focus on the people who do the work and are hurt the most. Let's begin to say to the CEO's that they need to make some sacrifices and not put the burden on the workers.
Vinny, from what I've learned, it sounds like the "legacy" costs are a huge burden, but that is part of the union deals they have made.
I think they can get loans in this climate, but not at a useful interest rate, which explains why they're asking the feds for loan guarantees -- they have bad credit. But it is time for us to start asking why the banks we bailed out are sitting on so much of that money instead of getting it in the credit markets like we intended.
Tony, thanks for stopping by. I understand your concern, but this is clearly a case where helping the corporation as a whole is better than trying to help an individual. If the company stays open, their employees (well, some) and other companies up and down the supply chain can make a living. If we "bail out" the workers and not the company, then we're stuck with a bunch of unemployed people who now expect us to keep sending them money.
I agree that management needs to feel this too. If we're asking the unions to renegotiate some contracts, we can certainly ask management to do the same.
It is part of the union deal, but it is also part of competing against manufacturers in countries with nationalized health care systems. Conservatives like to talk about the discipline of the market, but every other country has policies that support their industries.
If they cannot get loans at a useful interest rate, then they go into Chapter 13 liquidation rather than Chapter 11 reorganization. Banks may actually be less likely to lend them money at a higher rate because they are less likely to get repaid. It really is then a choice between bailout or bust.
The problem is that we are trying to resolve these economic problems with the traditional methods.
We want to keep the auto industry solvent because of the jobs that are involved, not only in the actual manufacturing of automobiles but in the various support industries as well. And I understand the need to keep those jobs viable but we need to make sure that the mistakes of the past are not redone.
If we are using taxpayer funds to "bailout" an industry, perhaps we should make the taxpayers the owners of the firm being bailed out. I know that employee-ownership is not a new idea but it is one that is not often mentioned.
And when you balance the need for autos against the environment, we definitely need new ideas.
I am going to play with this idea and post something on my own blog ("
Thoughts From The Heart On The Left
Tony, setting aside the fact that I think most of the enviromental "issues" are a bunch of hooey, the last thing we need is government "ownership" of the automakers.
That's one reason I'm glad we're talking about loans instead of gov't investment (as with the banks) -- which government program or office is so efficient, so wise, so productive that you want them telling people how to make cars?
Or, put another way, the federal goverment would have gone out of business years ago if they were anything but the federal government.
If you want a new kind of car, get all your friends to ask the car makers for one. And then buy it (don't be like the usual greens and decry Detroit from your SUV). Get your friends to buy it.
Detroit will make what we buy. But if we force them to make what we won't buy, they'll be back in the same trouble they're in now.
Keep in mind that I am not talking about "government ownership" of any company; I am talking about the employees of the company owning and operating the company.
Also, as long as we are tied to the internal combustion engine as our primary means of transportation, there are going to be environmental consequences. Let's face it, mankind used to think that we could dump our garbage into the oceans, rivers and lakes of this world. Then we learned the hard way the consequences of those actions.
Whether or not you accept the idea that global warming is man-made or not, you have to think about that fact that the volume of clean air that we have to breathe each day is a fixed amount and each amount of exhaust that we produce from each car reduces the amount of clean air. That is perhaps a bit over-simplified but we have to recognize that we are limited in the fresh water that we have to drink and the clean air that we have to breathe.
If we are not good stewards of the environment, what are we?
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